Current issues in economics

Key promises rating agencies that net debt won’t go above 30% of GDP

It seems that the NZ government has promised Standard & Poor’s that it will not allow net debt to rise above 30% of Gross Domestic Product. On his recent visit to the UK John Key was invited to “Tea at The Economist” and said in the interview that

“We have essentially promised the rating agencies that debt won’t rise above 30% of GDP, and it’s our intention to keep to that commitment,”

However the total indebtedness of the NZ economy is about 85% of GDP and this is primarily made up of private sector debt and this is what S&P are concerned about. Key said that he is trying to lift the level of savings and mentioned initiatives that will be present in the forthcoming budget.

Standard and Poor’s placed New Zealand’s AA+ credit rating on negative outlook in November, signaling a one in three chance of a ratings downgrade in the next two years. Below is the full interview with The Economist.